Qfc Underwriting Agreement
April 11, 2021
Title II (but not the FDIA) also imposes a settlement suspension on the exercise of “default cross-referencing” corrective actions by counterparties under QFCs, which are triggered by the opening of a Security II bankruptcy for a consolidated partner (an “insolvent partner”) of the GSIB counterparty, including insolvent partners who have provided “credit enhancements” (mainly guarantees and guarantee contracts) to such counterparties. Had such a provision come into effect during the 2008 financial crisis, Lehman Brothers Holdings Inc.`s (LBHI) declaration of insolvency would not have resulted in cross-failures in the QFCs of its commercial subsidiaries, many of which would have been solvent. Title II also authorizes the transfer of “credit enhancers” from a bankrupt affiliate to a settlement transfer. Had such a provision come into effect during the 2008 financial crisis and LBHI`s assets had been transferred to a settlement transfer, the subsidiaries of lehman trading trading would have become subsidiaries of the resolution transfer and the acquirer would have assumed the associated liabilities under credit enhancements previously provided by LBHI. The “Stay Regulations” resolution requires GSIBs to modify or draft a wide range of financial contracts and move forward in potentially unexpected corners of the markets. CFQs are often equated with derivatives and “repo” agreements, but they also include cash and advance contracts for physical products and “sale, sale or loan” contracts and therefore cover the ordinary activities of the capital market in which securities are purchased directly by the issuer for resale to investors. In the United States and abroad, corporate clients have provisions in the “Stay” resolution regarding inclusion in derivatives, physical commodity contracts and syndication agreements. The situation: U.S. bank supervisors have issued resolution stay regulations, which require “global systemically important banks” (“GSIBs”) to amend a large number of “eligible financial contracts” (QFCs), including cash and foreground contracts for physical commodities, investment contracts and other offerings. It is important to recognize that the Stay Regulations resolution does not directly require non-GSIBs to be required to do something (and references to what is “necessary” in the Stay Regulations resolution must be understood under this requirement). On the contrary, they prohibit the implementation of QFB that do not comply with QFC regulations, and the approval of QFC rules is therefore a precondition for transactions with all “in-scope” GSIbs.
However, any “failure” in compliance or other errors is the sole responsibility of the GSIB concerned. The Dodd-Frank Wall Street Reform and Consumer Protection Act1, commonly known as the Dodd-Frank, defines a very broad QFC. The definition includes all securities contracts, commodity contracts, futures, retirement contracts, swap agreements and similar agreements that the Federal Deposit Insurance Corporation (FDIC) establishes as eligible financial contracts by order, settlement or settlement or order2.